Salvadoran banking remains solid in the face of global crises

El Salvador has been impacted by several international economic crises in the last two decades, two of the biggest ones that occurred during the administration of President Nayib Bukele: in 2020 and 2021, the COVID-19 pandemic, and in 2022, the inflationary container crisis and the threat of recession in the US.

According to the head of the Superintendency of the Financial System (SSF), Mario Menéndez, the government’s actions have had a positive effect, and the soundness of the national banking system has represented an important pillar.

“Although it is true that the global economic crisis generated by international conflicts and world inflation is impacting the economies of countries around the world, our financial system has demonstrated its strength in the face of various economic crises such as that of 2008 and that generated by the pandemic,” Menendez said.

In the pandemic, the financial sector remained active during the period of confinement, largely sustained by the population’s habit of saving. According to the superintendent, the public has increased trust in the banking sector, and there has been a steady increase in deposits as well as an evolution in the amount of savings accounts.

Likewise, good health management—including anticovid vaccination—and the measures to stabilize the financial system contributed to the banking entities’ being able to resist and recover from the difficulties and interruptions in production.

“Far from that scenario that the 2008 crisis left us, banks in El Salvador have faced the effects of the COVID-19 pandemic with adequate capital and liquidity ratios,” he pointed out.

On the other hand, the official highlighted that with the reduction of liquidity requirements, banks have had greater availability of cash to support the economic reactivation and this has allowed them to accommodate their short, medium, and long-term credit obligations with a positive cash position.

As of June 20, financial indicators such as savings account balances increased by $563.8 million year on year, while loans increased by $1,280.8 million in point-to-point comparison.”This is key to boosting the country’s productive development,” said Menéndez.

In addition, the SSF highlights that the initiatives promoted by the Salvadoran president to reduce the impact of the crisis, such as the regulation of food trade and its prices, support for vulnerable consumers and households, and support for farmers to achieve food security, are contributing to keeping the economy in good health, where the banking system is a resilient pillar and a financial intermediary actor.

“For our part, as the Superintendence of the Financial System, we have established a permanent dialogue with the banking sector in order to encourage the development of financial products that promote savings and benefit the user population,” he said.

On the other hand, the president of the Central Reserve Bank (BCR), Douglas Rodríguez, recently stated that the risk of economic recession in the country is definitely “discarded” since there is no indicator of a significant drop.